Research Team, 17 March 2017

The most important event on our economic calendars this week was the US Federal Reserve March meeting. Although the resulting 25 basis point increase to the Fed Funds rate was a foregone conclusion, the accompanying commentary was closely watched. In the lead up to the meeting, some analysts were expecting the Fed to ramp up its project rate path for the year, however it remained the same, expecting a further two to occur this year. This was the third rate hike since the global financial crisis and the accompanying commentary from Fed Chair Janet Yellen has been labelled a goldilocks view with the Fed not wanting to seem to eager, although acknowledged that the economy is in good shape.

Politics have been in focus this week in the UK and Europe with Dutch elections as well further progress for the Brexit process dominating headlines. The election was won by the incumbent Mark Rutte, with far right candidate Geert Wilders losing, although gaining seats. Had Wilders been elected as Prime Minister, the Netherlands would have left the EU and it could have set a precedent for upcoming elections in France and Germany. The voter turnout was the highest in 30 years at 81% with analysts believing that the higher than usual turnout may have been beneficial to Mr Rutte.

It was an interesting week in the UK with Scotland announcing that it would in fact have its once in a life time vote for the second time in a year. First Minister Nicola Sturgeon announced a second Scottish referendum will be held, blaming the UK Government’s lack of compromise over Brexit. And it appears that this time, the country may get its independence from Britain with an academic study showing that support for Scottish Independence is at its highest ever level. The vote will occur between Autumn 2018 and Spring 2019.

Meanwhile, in England, Prime Minister Theresa May is now free to invoke Article 50, which will trigger Brexit after a five week long battle with Parliament. The House of Lords tried to add in two conditions, allowing EU citizens to have full rights to live and work in the UK after Brexit, which were quashed by the House of Commons. May is now free to trigger Brexit, and is expected to do so by the end of March.

The big event on the local calendar was the fourth quarter Gross Domestic Product reading. Leading up to the announcement the market was torn on what the result would be as it included the Kaikoura and Wellington earthquakes. Average forecasts were for growth of 0.7% however, the actual reading disappointed, with only 0.4% growth. There was also a downward revision for the third quarter going from 1.1% to 0.8%. Annual GDP growth for the year ended 31 December 2016 was 3.1%, also slightly below consensus estimates of 3.2%. The transport sector was hardest hit by the earthquakes with road, rail and port damaged, causing a major disruption. The dairy industry also dragged with lower milk production, while forestry and mining also saw declines in their contributions. The declines were offset by growth in the services industry as strong tourism demand, strong construction activity and robust business confidence supports the economy.

Across the Tasman, the Australian Labour Force survey was released and showed an increase in the jobless rate. Unemployment jumped to 5.9%, its highest level in just over a year with the economy shedding 6,400 jobs. Expectations were for the unemployment rate to remain at 5.7% in February. In positive news, there was a change of trend with 27,100 full time jobs being created, while 33,500 part time jobs went away. The participation rate remained at 64.6%.